Beware the other boot after ScoMo's tax cuts

Prime Minister Malcolm Turnbull meets with United States of America President Donald Trump and Japanese Prime Minister Shinzo Abe during a trilateral meeting at the ASEAN summit in Manila, Philippines on Monday 13 November 2017. Australian Prime Minister Malcolm Turnbull visits Vietnam, Hong Kong and Philippines to attend the APEC and EAS Summits and to attend bilateral talks on regional trade and security. Photo: Alex Ellinghausen

The south side of January 26 is still the official silly season, yet Scott Morrison has come out swinging to set his key economic battleground for the year and commentators to the left and the right have hailed the electoral revival of Malcolm Bligh Turnbull.

Or maybe that's all happened because it is still the silly season. There's yet to be a Newspoll to confirm claims Turnbull has turned into a winner.

The coalition's alleged revival is primarily based on 2017's strong jobs growth and the prospect of more to come with (fingers crossed) better wages growth to follow. Treasurer Morrison has seized on that as justification for what will increasingly be the government's economic mantra - "The Party of Tax Cuts".

But the tax cut boot dropped again during ScoMo's happy jobs media conference has a sibling that we're unlikely to hear much about before the next election: spending cuts.

As suggested here previously, it is possible that Australia may be dragged into a damaging race to the bottom on corporate tax rates somewhere down the line if we're not intelligent and brave enough to implement genuine holistic reform of our tax system.

But for the local neoliberals, like their heroes across the Pacific, the priority is to cut government revenue first and worry about the broader impact later as they have a cunning plan: reduce revenue enough and government will be forced to cut spending as well.

That second boot is already falling in the US with Republicans announcing their goal of going after spending, having cut revenue to blow out the debt and deficit. With the tax cuts doing their bit to increase inequality in America, the prime targets for reduced spending are programs for the poor, further increasing the gap.

It would be nice to think this urge to increase inequality, to make the rich richer and bugger the consequences, is a purely American stupidity, like their crazy gun laws and lack of universal health care. There's a depressing argument that it's a much broader phenomenon, that the inherent element of greed is a basic part of human nature and that the grip of economic power over political power inevitably reinforces it.

There's been an increasing focus on the nature of growing inequality. Peak depression seems to be reached in a book with the catchy title The Great Leveller: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, by historian Walter Scheidel. The Economist's review summarises it neatly for those wanting to avoid a heavy read:

"Having assembled a huge range of scholarly literature to produce a survey that starts in the Stone Age, he finds that inequality within countries is almost always either high or rising, thanks to the ways that political and economic power buttress each other and both pass down generations."

The bad news is the Scheidel reckons the march to greater inequality is only reversed for a while by the complete collapse of states and economic systems, mass-mobilisation wars, total revolutions and large-scale epidemics. He argues that well-meaning political initiatives don't cut it. The greater political power and influence that comes with wealth ends up primarily furthering the interests of wealth.

That instinct is on display in the right wing's doctrinaire approach to government, the constant pushing of an article of faith that the only good government is smaller government.

As part of that, the push within the Coalition's right wing to target social welfare is a constant - cue dodgy stories of true-blue Aussie workers slaving to support dole bludgers - but it's dangerous to enunciate such core values when well behind in the polls. After the success of Mediscare, woe betide any government member publicly knocking our social safety net.

A clear window on conservative thinking though was opened on these pages by right-wing think tanker, Tom Switzer. Switzer praised Turnbull's revival, giving him credit for everything from the same sex postal survey to defending January 26 as Australia Day, with improved global economic conditions and Sam Dastyari doing no harm either.

But, warned Switzer, Turnbull's improved circumstances would come to an end. He must seize the moment with big, bold tax cuts.

In case you skipped it, Switzer proposed either a five-point plan or justification for tax cuts - it's not clear which. It basically boiled down to four things: big income tax cuts; big company tax cuts; increase the GST; and cut spending.

As usual with the tax cut chorus, it's built on dogmatic assertions and unquestionable belief in conservative theories, carefully avoiding contradictions evident in the real world. For example, Switzer decrees:

"Canberra should complement real spending cuts with tax cuts to give incentives to the economy's most dynamic workers and entrepreneurs. Taxes should be cut not for their own sake, but to encourage enterprise, individual responsibility and self-reliance - and boost revenue.

"Prosperity cannot increase in a high-tax economy. And without prosperity, the government won't have the growth it needs to fund Labor's big-spending schemes (the Gonski school-funding model, National Disability Insurance Scheme). Tax cuts may not pay for deficit reduction without spending cuts. Still, the idea that lower taxes boost revenues by encouraging economic activity should be on the lips of every government MP."

And if they say it enough, some people might even believe it, contrary to solid evidence.

The idea that prosperity cannot increase in a high-tax economy will come as quite a shock to the majority of the world's most prosperous and successful economies. Pick any of the several lists of the world's best places to live/most successful nations/successful societies and the majority of the Top 10 will be high taxers.

To use the most recent such list - the UN's Human Development Report - only one of the top 10, Singapore, could be called low-taxing while Ireland, where tax revenue is 23 per cent of GDP, is lower taxing.

Little old Australia scores the silver medal on the UN list, pipped by Norway. Conservatives and their media cheer squads have worked long and hard to convince Australians that they are highly taxed. The reality is that, at 34.3 per cent of GDP, government revenue is a smidge below the OECD average of 34.8.

The prosperous likes of Switzerland, Sweden, Netherlands, Norway, Finland and Iceland are all bigger taxers than Australia, some of them much bigger taxers - Finland 54.2 per cent, Norway 54.8, Sweden 50.5.

But don't left facts get in the way of what's supposed to be dribbling from government MPs' lips.

And then there's the furphy about cutting taxes guaranteeing greater investment and growth, the chant we're going to hear all year from Misters Turnbull and Morrison. Taxing smarter can help, taxing badly can hinder, but chanting doesn't make it real.

In America, home of the crazy brave, the pin-up state for the conservative "cut government and they will come" brigade has been red-tape-and-tax-slashing Kansas, the antithesis of high-taxing-nanny-state California.

The experiment has been a disaster for Kansas while California has soared. Last year, the Kansas legislature finally gave up, voting to increase taxes.

But don't worry, Tom Switzer provided sage advice for PM Turnbull on how to handle any pesky journalists questioning the economics of his key policy. The Prime Minister should just quote a suitably conservative American economist:

"Whenever there is a proposal for a tax cut, media pundits demand to know how you are going to pay for it. But when there are proposals for more spending on social programs, those same pundits are strangely silent."